Following three days of aggressive dumps, tremendous fear, and liquidations, the cryptocurrency market is picking up momentum. Sheldon examines a confirmation pattern to see if the market is ready for a new rally, as well as set-ups that will produce the most powerful rebounds.
- Key levels to watch
- Leverage shake-out
- Buying opportunity for investors
Key levels to watch
There is a correlation between the cryptocurrency and traditional markets in terms of their trajectories. The crypto markets, like the stock market, are beginning to show signs of relief, with the Dow Jones Index (a price-weighted average of 30 blue-chip firms that are generally industry leaders) bouncing back after five days of decline.
The DXY (US dollar index), which measures the dollar’s strength in relation to other assets, is technically overbought and losing steam. This shows that investors are becoming more confident in investing in digital assets.
When the DXY is overbought and has poor strength (as it does now), technical indicators indicate that a significant reversal is imminent.
Bitcoin bounced off the golden zone (0.618 Fib level) following the correction, and is still holding the bullish trend on the weekly time frame. In the event that the leverage has been entirely shook out, Bitcoin is expected to surpass the critical $53,000 level in the next couple of days.
Rejection at the crucial level, followed by a return to the lows, is another possible scenario to ensure that the market’s leverage has been entirely wiped out.
Analytics from Cryptoquant reveal Bitcoin all exchanges estimated leverage ratio dropped from 0.21 levels to 0.09 as result of the correction but is now back up to 0.17. However, there will naturally be more leverage in the market due to the Bitcoin futures ETF.
It would be good for leverage derivatives to drop to lower levels before a new rally, because if Bitcoin goes on a rally right after the correction, leverage will skyrocket as well.
Buying opportunity for investors
Kusama (KSM) has tested the 0.618 Fib. level, which represents a good buying opportunity; further wicks down the level are favourable for dollar cost averaging into the digital asset. Around $170 – $180, Solana (SOL) is also a decent buy. Terra Luna (LUNA) has its sights set on $90, however due to the recent increase, buying is not recommended at current prices.
Avalanche (AVAX) is another good discount possibility, down approximately 40% from its recent all-time high, dollar cost average into the coin around $80 – 90$ is palatable. On longer time frames, Render (RNDR), Fantom (FTM), Chainlink (LINK), Cardano (ADA), ThorChain (RUNE), and Energy Web Token (EWT) are showing strong purchase opportunities; dollar cost averaging into them is recommended if we see another drop down.
The market dynamics are changing at a frenetic pace with the combination of events in the traditional market and the rise of leverage derivatives. The bull market is still alive and kicking, but it will take some time to recuperate. Bitcoin needs to be established over $53,000 before initiating another surge rally.